- Markets are experiencing knee-jerk reactions after President-elect Trump dismissed rumors about implementing universal tariffs.
- Earlier on Monday, reports suggested that Trump might consider a universal tariff on critical imported goods.
- Gold prices remain confined within a pennant technical pattern, with pressure mounting for a potential breakout.
Gold prices (XAU/USD) are retreating to around $2,633 on Monday, reversing earlier gains following a sharp rise on the first trading day of 2025. The initial rally was driven by traders swiftly reopening positions they had trimmed before Christmas. However, prices have since softened slightly, even as US yields remain relatively high. Market volatility intensified after reports suggested that President-elect Donald Trump might consider implementing a universal tariff on critical imported goods. Trump later clarified that the original tariff framework would remain unchanged.
Meanwhile, geopolitical developments are creating additional uncertainty. Italian Prime Minister Giorgia Meloni departed from the European Union’s unified stance by meeting with President-elect Trump independently. In Canada, Prime Minister Justin Trudeau is reportedly preparing to resign this week, according to Bloomberg News. Adding to the headlines, a Washington Post report highlighted that Trump is contemplating a simplified tariff approach through a universal tariff on critical imports, though this was later denied by the president-elect.
Daily Digest: Market Movers and Key Developments
- Tariff Speculation: President-elect Donald Trump has dismissed earlier reports that he is considering simplifying tariff schemes. He reaffirmed that the proposed tariffs would remain unchanged. However, according to a report by the Washington Post earlier on Monday, Trump is still weighing the possibility of introducing a global tariff focused solely on critical US imports.
- Economic Calendar: Markets are entering the first full trading week of 2025 with a packed economic agenda. The highlight of the week will be Friday’s US Nonfarm Payrolls report, which is expected to be a key market mover.
- US Yields: The US 10-year yield, which reached a 7-month high of 4.639% last week, is retreating slightly to 4.57% as of Monday. The decline comes as bonds are bid in response to speculation about universal tariffs.
- Federal Reserve Outlook: The CME FedWatch Tool indicates only a 10% probability of a 25-basis-point rate cut in January. Market expectations remain focused on a data-driven approach by the Federal Reserve, with potential policy shifts influenced by inflation dynamics after Trump’s inauguration on January 20.
- European and US PMI Data
-
- Europe: France, Germany, and Spain reported better-than-expected rebounds in their Services PMIs, with minor improvements over forecasts.
- United States: The US Services PMI, released by S&P Global, missed expectations, coming in at 56.8 compared to a consensus of 58.5 and the previous reading.
Technical Analysis: Going nowhere for now
From a technical perspective, gold prices are currently trapped in a pennant chart formation, respecting both ascending and descending trendlines. This indicates a period of consolidation, with buyers and sellers gradually converging. A breakout appears inevitable, but it may take time before a decisive move occurs.
On the downside, the 100-day Simple Moving Average (SMA) at $2,627 is providing immediate support, though it remains under pressure. The ascending trendline of the pennant formation offers additional support near $2,606, a level that has held firm on three previous occasions. If this support is breached, a swift decline toward $2,531 could follow, re-establishing it as a critical support level.
On the upside, the 55-day SMA at $2,658 represents the first significant resistance. This level has proven resilient, having rejected attempts to break above it twice last week. If prices manage to overcome this barrier, the next target would be $2,690, which aligns with the descending trendline of the pennant formation and marks the ultimate upside level in the current pattern.
